Google’s interest in Africa is growing by the day, as its US$1 billion investment to support digital transformation in Africa is driven by Africa’s favourable demographics, Fitch solutions indicates.
In October 2021, Google pledged investing US$1 billion in Africa to accelerate the region’s digital transformation. Google said part of the investment will be allocated towards funding its third private international subsea cable, Equiano.
Although the cable infrastructure is not a recent disclosure, the newly allocated US$1 billion fund will go towards enhancing the cable’s landing stations. The Equiano cable will run along the West Coast of Africa to connect South Africa and Portugal and include landing stations in Namibia, Nigeria, DRC and St. Helena.
According to Fitch Solutions, these markets in particular will benefit from higher connectivity and cheaper international bandwidth. Already, Africa suffers from expensive internet access costs as a result of the scarcity of cable connections as well as an over-reliance on pricier satellite links. “So, we expect better connectivity will go a long way towards increasing the affordability of connectivity.”
“Google’s interest in Africa does not come as much of a surprise: the region has seen heightened interest in recent years driven by its favourable demographics, leaving companies a mass of opportunity on which to leverage their services.”Fitch Solutions
Google to benefit huge African Market
According to Fitch Solutions, Google will look to enhance its status as a subsea infrastructure investor as it launches this project. More recently, tech-giant Facebook and other telecom operators have increased investments in subsea cables in the region.
Expanding the reach of internet connectivity and ensuring access is important for Google’s own growth, Fitch averred. With a population of over 1.4 billion, Africa recorded mobile internet penetration of 28 per cent in 2020, according to GSMA. This leaves Google and other internet-enablers the opportunity to bring connectivity to a huge number of people.
In Q2 2021, Google’s ‘Search’ function generated US$35.85 billion and accounted for 58 per cent of the company’s total revenues. Thus, by expanding reach of internet connectivity in Africa will open up a whole new user base Google can tap to drive revenues.
“As internet connectivity in the region improves, it is also likely we will see a further boost of investment into cloud computing facilities by hyperscale vendors.” At the time of publication, Fitch Solutions averred that, “Google does not yet have a cloud computing location in Africa.”
Therefore, this investment indicates Google’s commitment to the region’s digital ecosystem. “We find it likely that Google will add a cloud computing facility at a location along the route of the Equiano cable, presumably in South Africa… or in Egypt.”
Downside Risks mire Africa’s data centre market
Looking at the growing trend of investments in Africa’s data centre market, Fitch Solutions believes Google’s intensifying interest is part of a wider trend that is likely to continue over the medium-to-long term.
However, Fitch said the investments in Africa’s data centre market are mired by downside risks presented by unique macroeconomic challenges and power supply issues. Fitch notes that, although there is broader transition to alternative energy, the high cost involved with implementing energy alternatives may dissuade the risk averse and financially challenged parties.
Furthermore, investments will largely be confined to coastal markets with the necessary bandwith to operate data centres owing to their proximity to the subsea network. As a result, South Africa and Nigeria are regarded as outperformers of Sub-Saharan Africa (SSA) in terms of cloud spending. Their combined market value will reach a value of US$2.42 billion and US$1.18 billion by 2024, respectively, Fitch notes.
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